Thursday, February 13, 2014

Scott Sumner thinks fiscal policy is socialist!

At least that’s what he claims in this postwhich I just stumbled across.

As it explains in the introductory economics text books, fiscal stimulus can take the form of EITHER more government spending OR tax cuts. Indeed SS himself actually says “Tax cuts are fiscal stimulus..” Well quite. Ergo fiscal policy is not inherently left or right wing. He contradicts himself.

By way of trying to bolster his case, SS claims “Fiscal policy can’t really do anything in the AD/NGDP area.” The implication presumably being that advocates of fiscal policy are not trying to bring about an ECONOMIC effect, so they must be politically motivated.

Well unfortunately about 95% of economists would disagree with the idea that fiscal policy has no effect at all. Fiscal policy is widely regarded as defective in that crowding out to some extent negates the stimulus that fiscal policy is supposed to bring, and I agree that that defect is there. But very few economists regard the defect as being severe enough to render fiscal policy totally useless, as SS claims.

Another argument put by SS is that the majority of Keynsians / advocates of fiscal stimulus are left of centre and want bigger government. Well perhaps they do. And perhaps the majority of tea drinkers are left of centre politically, while the majority of coffee drinkers are right of centre. But that doesn’t mean that drinking tea is an INHERENTLY left of centre activity or that drinking coffee is an inherently right of centre activity.

Scott Sumner, like many other professional economists, needs to do a course in basic logic.